We have established an efficient system for differentiation, expansion and isolation of hepatic progenitor cells from mouse embryonic stem (ES) cells and evaluated their capacity to repopulate injured liver. Using mouse ES cells transfected with the green fluorescent protein (GFP) reporter gene regulated by albumin (ALB) enhancer/promoter, we established that a serum-free chemically defined medium supports both the formation of embryoid bodies (EBs) and the differentiation of hepatic lineage cells in the absence of exogenous growth factors or feeder cell layers. The first GFP+ cells expressing ALB were detected in close proximity to "beating" myocytes after 7 days of EB cultures. GFP+ cells increased in number, acquired hepatocyte-like morphology and hepatocyte-specific markers (i.e., ALB, AAT, TO, and G6P) and by 28 days represented more than 30% of cells isolated from EB outgrowths. The FACS-purified GFP+ cells developed into functional hepatocytes without evidence of cell fusion and they participated in the repairing of diseased liver when transplanted into MUP-uPA/SCID mice. The ES cell-derived hepatocytes were responsive to normal growth regulation and proliferated at the same rate as the host hepatocytes after an additional growth stimulus from CCl4-induced liver injury. The transplanted GFP+ cells also differentiated into biliary epithelial cells. We conclude that a highly enriched population of committed hepatocyte precursors can be generated from ES cells in vitro for effective cell replacement therapy. We have developed a protocol for efficient differentiation of human ES cells toward early stages of hepatocytic differentiation using a combination of humoral factors and co-culture methods. 5%-10% of the cells acquired a polygonal shape and expressed albumin, AFP as well as CK8 and CK18 but not CK19 consistent with their differentiation along the hepatocytic lineage. We have now established a protocol for generating induced pluripotent (iPS) cells from human fibroblasts using transduction with lentiviruses carrying four reprogramming factors Oct4, Sox2, Klf4 and Lin28. Our current and future plans will focus on: (i) detailed biochemical and genomics characterization of the in vitro differentiation of the human ES and iPS cells into hepatocytes including in vivo transplantation of the cells into 1-day old mice to formally test their ability to give rise to the differentiated hepatocytes;(ii) transformation of human hepatoblasts derived from ES and IPS cells;and (iii) transformation of adult human hepatocytes and cholandocytes.